Power shortages lead to project delays

21 December 2007

Dubai’s real estate projects are facing delays as the emirate’s electricity grid fails to keep pace with the city’s rapid growth. Developers claim completion dates will be postponed by several months until substations are in place to supply power to mega-project developments.

Dubai Electricity & Water Authority (Dewa) is under increasing pressure to ensure projects are connected to the electricity grid in time to meet completion deadlines.

In mid-December, the authority issued a tender for the supply, installation, testing and commissioning of 16 new 132/11kV substations and one 132/33kV substation. The estimated cost of the project is AED1.47bn ($400m) The tender is one of several in 2007.

“Dewa has a target of 40-50 substations in one year,” says a senior industry source. “In 2007, 40 substations were tendered directly by Dewa, and several tenders were issued by private developers with Dewa as the end user.”

The tenders follow the award of 35 substation contracts in 2006.

Projects in Dubai are already thought to have been delayed as a result of Dewa’s failure to connect them to the electricity grid.

Issuing more tenders will not solve the problem, say observers, as contractors will struggle to build the substations on time.

“They cannot stop,” says the industry source, referring to the issue of tenders by Dewa. “It will have to keep issuing them, but ultimately contractors will not be able to meet demand.”

The key difficulty facing contractors is a scarcity of equipment.

“Most contractors already have very high workloads and many are not able to keep pace with the requirements,” he says.

“They are not able to source equipment on schedule because production lines are already overloaded.”

On average, contractors are asked to deliver a substation in 18-19 months. “Most contractors are able to achieve this for two or three or four substations, but for large contracts they will negotiate an extension,” says the source.

“I anticipate extensions of five to six months.”

The demand for substations is expected to continue in 2008, with the need for 40 to 45 already identified.

“Dewa has to be flexible,” says the source. “With the shortage of production capacity, it has to be more realistic with its completion times.”

An alternative would be to open the market to firms from China, South Korea and India.

Abu Dhabi is in a similar but less serious situation. In 2007, 15 substations were contracted for, and 15 have already been identified for 2008.

“It is not that their approach is better, but growth is smaller in Abu Dhabi.” says the source. “So it is more manageable.”

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